LLC expenses cheat sheet: What you can and can't deduct

If you’re a new founder or business owner, you might be wondering, “Can you write off expenses with an LLC?” Running an LLC comes with a steady stream of small financial decisions, like which software to buy, whether that client dinner counts as a business expense, or how to handle a phone bill that covers both work and personal calls, for example. So, it’s helpful to get clear on what you can write-off, especially when you need to offset business tax liabilities. However, it’s critical to follow the rules when it comes to deducting expenses.

This LLC expenses cheat sheet breaks down what’s generally deductible, what’s not, and what falls into a gray area. Keep it handy for quick reference, and use it as a starting point. Your specific situation, state, and industry can all change what applies to your LLC.

The IRS doesn’t provide a single, comprehensive master list that specifically outlines what expenses are tax deductible for an LLC. When you’re getting ready to file your income tax, the IRS instead prompts business taxpayers to consider two factors: whether the expense is ordinary and necessary

An ordinary expense is one that’s common in your line of work. A necessary expense is one that’s helpful and appropriate for running your business, even if it’s not strictly required. Neither means that the expense has to be essential to your survival. It just has to be genuinely connected to how you operate your business. Establishing that connection is the most important part of justifying an expense. A $40 software subscription and a $4,000 piece of equipment can both be deductible, as long as each one is tied to your business (and not your personal life).

No, you don’t need to register an LLC, specifically, in order to write off business expenses. Sole proprietors, freelancers, independent contractors, and LLCs can generally deduct ordinary and necessary business expenses. Whether an expense is deductible or not will come down to the nature and purpose of the cost. How your business is structured and how it gets taxed will affect how you’ll need to report deductions — but not whether an expense qualifies as a write-off in the first place.

Although not always legally required, maintaining a separate business bank account is considered a best practice. This makes it far easier to separate business spending from personal spending, and it simplifies the process of proving deductions if the IRS ever asks.

If you’re trying to pin down what LLC expenses are tax deductible for your specific business, it’s usually fastest to search by category. 

Within these categories, there are a few specific costs that come up consistently across LLCs. These include business banking fees, contractor and freelancer payments, website and domain costs, advertising spend, and legal or accounting fees. All of these are generally deductible as long as they’re tied to running the business.

Here’s a breakdown of common LLC deductions. 

Some costs are deductible, but only partially. These include the following.

Meals with clients

Meals with clients are typically deductible at 50% — as long as they double as business meetings. You’ll need to note who attended and what you discussed. 

Car mileage and gas

Vehicle use works similarly. If you drive the same car for client visits and grocery runs, only the business-use portion counts, and it needs to be backed by a mileage log.

Home office expenses 

Depending on how your LLC is taxed, you might be able to deduct home office expenses if you use the space exclusively and regularly for work. A desk that doubles as a homework station generally won’t qualify.

Phone and internet bills

Phone and internet bills follow the same logic: Only the business percentage is deductible, unless you run a separate business line. 

Travel

For travel that mixes business and personal time, like going to a conference and extending the trip into a weekend getaway, you’ll need to separate the days and costs that were genuinely business-related.

All of these expenses listed above are valid deductions. If you’re wondering how to write off expenses for LLCs when only part of the expense is business-related, the key is to calculate the percentage that reflects the actual business use.

Of course, there are some expenses that are completely off the table, but most of them won’t come as a surprise. These often include the following.

Personal expenses

Everything from groceries and personal clothing to haircuts and lunch with the kids typically fall into this category. Personal expenses like these can’t be claimed, even if you use a business card to pay for them.

Commuting costs 

Whether you drive or take the subway, commuting costs between your home and a regular workplace aren’t deductible. These costs include gas, bus passes, subway tickets, taxi fees, and more.

Fines and penalties

Did you get a parking ticket after a client lunch went long, or a tax penalty after filing late? These can’t be claimed, even if they’re related to your business.

Political contributions

You can make a political donation to a candidate, party, or PAC from your business account — but you won’t be able to deduct it as an expense.

Non-business entertainment

Tickets to concerts and sporting events can’t be claimed, even if you bring a client along.

The common thread is that these costs typically fall outside the ordinary-and-necessary test, no matter how you paid for them. Paying for something with a business card doesn’t make it a business expense.

To recap the deductibility information that we covered above, here’s a table with common expenses, for quick reference.

To develop best practices for how to write off business expenses as an LLC, start by establishing good documentation habits. That way you can back up each expense if the IRS asks about it. 

Here are five habits that make all the difference.

1. Categorize expenses as they happen

If you wait until tax season to sort out a year of spending, mistakes will likely creep in. If you’re setting up a system from scratch, start by reading our guide to categorizing business expenses as a useful reference if you’re setting up a system from scratch.

2. Keep receipts and documentation

Digital copies work fine, as long as you keep them organized and they’re easy to find when you need them. Most expense management software makes it easy to take a picture of a receipt and attach it to an expense entry.

3. Separate business and personal spending

Using a dedicated business bank account and card is far easier than untangling expenses in a mixed-use account after the fact.

4. Document the business purpose

For any expense with a partial or mixed-use component (like meals, mileage, or travel, for example), write down the who, what, when, where, and why right away — not months later, when the details might have grown hazy.

5. Reconcile regularly

Do a quick monthly review to catch miscategorized transactions before they pile up into a bigger cleanup job.

If you’re looking for an LLC expenses cheat sheet, here’s a short version to keep on hand. Whenever a questionable expense comes up, review this checklist:

• Is this expense ordinary for my industry?
• Is it necessary for running my business (even if it’s not strictly required)?
• Do I have documentation showing that this was a business expense?
• Do I have a receipt or invoice on file?
• If it’s mixed-use (like meals, vehicles, or home-office expenses), have I noted the business-use portion?
• Have I categorized it correctly for tax filing?
• Is it large, unusual, or far enough outside my normal spending to warrant a second opinion?

Good recordkeeping comes from developing ongoing habits (not doing a once-a-year scramble). Here’s a list of tasks to stay on top of throughout the year:

• Keep receipts and invoices for at least three years (or longer, if required).
• Maintain mileage logs with dates, destinations, and business purposes.
• Note attendees and topics for business meals.
• Track the square footage and exclusive-use status of any home office space.
• Reconcile your books monthly, instead of waiting until tax filing season.

Even when you have a solid system in place, in some situations it’s worth getting a second opinion — like when you’re making a large equipment purchase, for a mixed-use expense you’re not sure how to split, or during your first year running your LLC. A qualified tax professional can confirm whether the deduction fits your specific state’s rules and your business structure, and they can help you avoid tax surprises — which matters more than getting a single write-off exactly right. 

None of this has to be complicated. Determining whether most LLC expenses are deductible usually comes down to making sure that they’re necessary, ordinary, and connected to the business. Then, all you have to do is document the details as you go and loop in a tax professional for anything you aren’t sure about. 

Ready to get started? Explore how Mercury’s payroll products can keep your expense tracking and payroll organized.